costing_of_the_greens_mining_policies.pdf

8/10/2019 Costing_of_The_Greens_mining_policies.pdf

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CostingofTheGreensEconomicPolicies:Mining

SinclairDavidsonandAshtondeSilva


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i

AbouttheAuthors

Sinclair

Davidson

is

a

Professor

in

the

School

of

Economics,

Finance

and

Marketing

at

RMIT

University and a Senior Fellow at the Institute of Public Affairs. He has written extensively on

taxation policy in Australia and is a regular contributor to public debate. His opinion pieces have

beenpublishedinTheAge,TheAustralian,AustralianFinancialReview,SydneyMorningHerald,and

WallStreetJournalAsia.SinclairhasalsobeenpublishedinacademicjournalssuchastheEuropean

JournalofPoliticalEconomy,JournalofEconomicBehaviourandOrganizationandtheCatoJournal.

Ashton De Silva is a Senior Lecturer in the School of Economics, Finance and Marketing at RMIT

University.

He

has

research

interests

in

macroeconomic

modelling,

forecasting,

and

multivariate

time series analysis. He has published in Economic Modelling and The International Journal of

StatisticalModelling.


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ii

Overview

The Greens stated economic policies require the phasing out of coal mining in the near future.

Contrarytoargumentsthatthispolicycouldbereasonablycostlesswe findthatmining ingeneral

and coal mining in particular is highly integrated into the Australian economy. We estimate the

directconsequence

of

that

policy

would

be

to

reduce

GDP

by

between

$29

billion

and

$36

billion

per

year.Thentherearetheindirectcoststoconsider.Foreachjob lostinthecoalminingindustry6.5

jobswillbe lost intheeconomyhasawhole.Theemploymentconsequencesof thecoal industry

closing would be almost 200,000jobs across the economy. The loss of corporate income tax and

increase inwelfarepaymentswouldconstituteanegative$6billion impactonthefederalbudget.

Forevery$1ofincomelostinthecoalminingindustry,$3.92ofincomewillbelostintheeconomy

asawhole.Atpresentanyreplacement industriesareunspecifiedso it isnotclearwhatthenet

costtotheeconomywouldbe.

Thesemagnitudesoflossarenottrivial.Themodestdeclineincoalexportsduringthefirstquarter

of 2011 were blamed for the negative economic growth. On the other hand, we show that coal

exports

increased

dramatically

during

the

recent

Financial

Crisis.

Without

that

increase

in

coal

exports, Australia would almost certainly have experienced a recession with, at least, three

consecutivequartersofnegativeeconomicgrowth.

MosttroublingwefindthatAustraliancomparativeadvantageincoalexportshaserodedinthepast

ten years. This we attribute to poor policy developments within Australia. It is clear that policy

makers have little regard for mining and this has encouraged poor policy making. Coal mining

performswelldespite thepoorpolicyenvironment. It isclear,however, thatpoorpolicywillover

time undermine Australias economic opportunities. At present, however, those policies have not

beenadeliberateattempttounderminetheindustry.

TheGreens,

and

to

alesser

extent

the

government,

propose

policies

that

are

deliberately

intended

todisadvantagecoalmining.Wearguethatgiventhecompetitivenatureoftheworldcoalmarket

thatthecostsofthosepolicieswillbe incurred inAustraliaandwillgive riseto few, ifany,global

environmentalbenefits.

Theargumentthatrenewableenergycouldeasilyreplacecoalpoweredenergyisfanciful.Australia

has little installed capacity in renewable energy compared to coal powered energy. In addition

renewableenergyisveryexpensiveandtechnologicallyuncertain.

Intermsof foregoneoutput, lostjobsandreduced incomethecostsof implementingTheGreens

economicpolicyrelatingtocoalmining(andminingingeneral)wouldbeveryhigh.


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iii

ContentsCostingofTheGreensEconomicPolicies:Mining

AbouttheAuthors...................................................................................................................................i

Overview.............................................................................................................................................

ii

Introduction........................................................................................................................................1

AustraliaintheGlobalCoalMarket....................................................................................................3

ACompetitiveMarket.....................................................................................................................3

AustralianCompetitiveness............................................................................................................6

MiningandtheFinancialCrisis.....................................................................................................12

Miningand

Coals

contribution

to

the

Australian

economy:

Input

Output

Tables

Analysis.

.....

15

InterIndustryAnalysis......................................................................................................................16

SecondaryImpacts........................................................................................................................20

ElectricityGenerationandopportunitycost................................................................................21

Conclusion.........................................................................................................................................24

Appendix1IndustrialsectorsthatfeedintotheMiningsector........................................................26

Appendix2Multipliers.......................................................................................................................28


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1

Introduction

TheGreenshaveaseriesofpoliciesthatrelatetothemineralssector.Thesepoliciesarenotalways

consistent or coherent. In their actual Natural Resources policy as stated on their website, they

opposetheestablishmentofnewcoalminesandtheexpansionofexistingmines.Whilethatmay

soundsomewhat

innocuous

what

it

actually

implies

is

the

extinction

of

the

coal

mining

industry

in

Australia. A mine that cannot expand cannot long survive as currently mined minerals must be

quicklyexhausted.This isahardeningofthepositionSenatorBobBrownhadarticulated ina2007

opinionpublishedinTheAustralian.1

The Greens believe that we need to move beyond Australia's reliance on coal. Last

week, I called on whoever wins office at this year's election to commit to a plan to

phase out coal exports. That plan must be in place by the end of the next term of

government so that we can move beyond coal as a matter of urgency. It might take

decadesforthetasktobecompleted,butthescientistsaretellingusthatwemuststart

immediately.

Clearlyapolicytophaseoutcoalexportsisconsistentwithclosingallcoalminesattheendoftheir

currentlives.TheGreenspolicy,however,alsorequiresthesubstitutionofalternateenergysources

for Australian domestic use. Senator Brown also suggested that renewables be employed to

substituteforforgoneexportearningsafterphasingoutcoal.2

CHRIS UHLMANN: The simple question is how do you replace $50 billion worth of

exportincome?

BOB BROWN: You go to renewables over the coming decades and you do that by

exporting... Look, Germany did this. It's closed its coal mine. It's closing its nuclear

power

stations.

It's

gone

into

exporting

renewables

including

using

Australian

technology...

In this paper we investigate The Greens policy towards coal and mining in general. There can be

little doubt that The Greens are hostile to themining industry in general and the coal industry in

particular. This interest in The Greens is not esoteric their economic policies generally have

managed to avoid close scrutiny while climate change policies are likely to adversely affect the

Australiancoalindustrymoregenerally.

Ofcourse,TheGreenspositionissomewhatextreme,sowewillalsoconsiderpoliciesthatflowfrom

theattempttoimposeacarbonpriceontheAustralianeconomy.Thispolicyflowsfromthesupport

TheGreens

have

given

to

the

minority

Labor

government

following

the

2010

election.

At

the

time

of

writingisnotclearwhatthecurrentpolicyproposalsentail,butthefederalTreasuryhadpreviously

releasedmodelling intotheCarbonPollutionReductionSchemethat includedexplicitassumptions

astothefuturepathoftheAustralianeconomyandalsotheimpactofthatpolicyoncoalminingin

particular.

1Brown2007.

2Uhlmann2011.


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2

BoxOne:GreensPolicies

1. NaturalResourcesPolicy

TheAustralianGreensbelievethat:

1. Australiasnaturalresourcesmustbemanagedinaccordancewiththeprinciplesofintergenerational

equity,biodiversity

conservation

and

respect

for

the

traditional

ownership

of

Aboriginal

and

Torres

StraitIslanderpeoples.

2. themanagementofAustraliasnaturalresourcesmustensurethesovereigntyandindependenceof

futuregenerations.

3. resourceextractiondecisionsmustbeguidedbyrigorousenvironmentalandsocialimpact

assessmentandbytheprecautionaryprinciple.

4.

climatechangemustbeacentralconsiderationinthemanagementofforests,fisheriesandmining.

2.

ClimateChangeandEnergy

TheAustralianGreensbelievethat:

10.

energypricesshouldreflecttheenvironmentalandsocialcostsofproductionanduse.

11.

renewableenergyprojectsshouldbeecologicallysustainableandgovernedbythesamedevelopment

guidelinesas

other

investments

of

asimilar

scale.

12.

themajorrefurbishmentofexistingcoalfiredpowerstationsunderminestheefforttoincreaseend

useenergyefficiency,demandmanagementandrenewableenergy.

14.

Australianeedstoplanforafuturethatdoesnotrelyoncoalexportandcoalfiredelectricity.

TheAustralianGreenswill:

38.

opposetheestablishmentofnewcoalfiredpowerstations,newcoalminesandtheexpansionof

existingmines,asthetechnologytocaptureandstoregreenhousegasemissionsremainsunproven.

39.

banpublicfundingtorefurbishanyexistingcoalfiredpowerstations.

40.

developaplantoassistaffectedcommunitiesinthetransitionfromdependenceoncoalminingand

coalfiredpowerstations,giventhatglobaleffortstoreducegreenhousegasemissionswillinevitably

reducethedemandforcoal.

Source:http://greens.org.au/policies


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3

AustraliaintheGlobalCoalMarket

In this section we examine two aspects of the coal market. First the fact that Australia faces a

competitiveinternationalmarketandsecondthatAustraliancompetitivenesswithinthatmarkethas

erodedovertime.

ACompetitiveMarket

AccordingtodatadrawnfromtheInternationalEnergyAgencyAustraliaistheworldssinglelargest

exporter of hard coal. Australia, however, is no means the worlds largest producer.3 In 2008

Australiaproduced5.62percentoftheworldstotalhardcoalproductioncomparedtothePeoples

RepublicofChinasproductionof47.19percent.Thetoptenproducersofcoalareshownbelow in

table1.

Table1:CoalProduction(Tonnesmillion)

2000 2005 2006 2007 2008

Australia

239.4 300.2 299.7 324.6 325.4

Canada 33.8 29.1 29.9 32.8 32.8

Columbia 38.2 59.1 65.6 69.9 73.5

FormerSovietUnion 289.2 352.2 364.1 370.5 388.5

India 311.4 404.5 428.4 454.4 488.6

Indonesia 62.8 143.6 195.8 223.8 235.1

Poland 103.3 97.9 95.2 88.3 84.3

PRC 1231.1 2158.9 2320.2 2466.4 2734.4

SouthAfrica 224.2 245.0 244.8 247.7 252.3

US 894.0 962.4 991.5 981.7 1007.2

TopTen 3427.4 4752.9 5035.2 5260.1 5622.1

World

3608.0 4931.0 5215.0 5441.5 5794.0

Source:InternationalEnergyAgency(2010)

Overtheperiodsince2000thetoptenproducershave increasedtheirproductionshare fromjust

lessthan95percentofworldproductiontojustover97percent.Worldproductionhasincreasedby

60.5 percent since 2000, with the top ten producers increasing their output by 64 percent. The

increaseinAustraliasoutput,however,hasnotkeptpacewiththeoverallworldincrease.Australian

output isupamere36percent,whileChineseoutput isup122percent,Columbianoutputup92

percent and Indonesian output up 274 percent. Canada and Poland have experienced declines in

output.

In2008

Australian

exports

of

hard

coal

amounted

to

252.2

million

tonnes,

comprising

26.7

percent

ofglobalexports.Despitethe34.9percentincreaseinhardcoalexportssince2000,Australiasshare

of the global export market had shrunk from 30 percent of the world market in 2000. Hard coal

exportsareshownintable2.

3AlldatareferencedinthissectionarefromInternationalEnergyAgency(2010)unlessotherwisespecified.


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4

Table2:HardCoalExports(Tonnesmillion)

2000 2005 2006 2007 2008

Australia 187.0 231.3 231.3 243.6 252.2

Canada 32.1 28.1 28.0 30.4 31.5

Columbia 35.4 53.6 62.0 64.6 67.8

FormerSoviet

Union

68.0

115.1 122.3 131.2 145.0

Indonesia 57.3 127.4 171.4 197.0 202.6

Netherlands* 9.6 7.4 9.9 11.9 7.5

Poland 23.2 19.4 16.7 11.9 8.5

PRC 55.1 71.7 63.2 53.1 45.3

SouthAfrica 69.9 71.4 68.7 65.9 60.0

US 53.0 45.1 44.9 53.4 73.7

TopTen 590.6 770.5 818.4 863.0 894.1

World 615.1 813.8 866.4 925.6 943.2

*TheNetherlandsdoesnotseemtoproduceanyhardcoalbutdoesimportandexporthardcoal.

Source:InternationalEnergyAgency(2010)

Since2000thetotalexportmarkethasgrownby53percent,butthe toptenexportershaveonly

increasedexportsby51percent.Australianexportshaveonlyincreasedby35percent,comparedto

increasesbyColumbiaof91.5percent,theformerSovietUnionof113percentandIndonesia253.5

percent.

Whilethetoptenproducersandthetoptenexportershaveremainedstableovertime,therehave

beensubstantialchanges inthetopten importingcountries.TheInternationalEnergyAgencydata

indicatethat importshavegrownby49percentsince2000.BothChinaandtheUnitedStateshave

experiencedhugeincreasesin importedhardcoalsince2000(bothatabout173percent)butthey

eachhavealowstartingpoint.Japanistheworldssinglelargestimporterofhardcoalandhasseen

a

22.5

percent

increase

since

2000.

India

(182

percent),

Germany

(62.7

percent)

and

the

United

Kingdom (87.6 percent) have all experienced the highest increases in hard coal imports. Some

EuropeancountriessuchasFrance, ItalyandSpainappear inthetopten importingcountriesfrom

timetotimebutarenotconsistentlyinthatgroup.

The firstquestionthatwepose iswhetherornottheglobalmarket forcoal iscompetitive.Under

somesimplifyingassumptionsthecompetitivenessofanindustrycanbeevaluatedbyconcentration

ratios.So, forexample,onecouldexaminethetop3 firms inan industrytoestablishtheirmarket

share if that share is high it is prima facie evidence that the industry might be an oligopoly. Of

course,therewouldbeotherfactorstoconsideraswellbutasafirstimpressionthismeasureworks

well. We are more interested in the market share of countries and not firms so we consider

countriesin

our

analysis

below.

Probably the most wellknown measures of concentration is the Herfindahl index.4 This index

measurestheconcentrationofanindustrybysummatingthesquaredmarketsharesofthefirmsin

theindustry.Thus,

ms=H2

n

1=i

i

4SeeMartin(1993:165)


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5

where msi is the market share of the ith

firm and n is the number of firms. The inverse of the

Herfindahlindexisanumbersequivalentofthenumberofequalsizedfirmsthatwouldgiveriseto

thatindexvalue.Wehaveusedthismeasurebysubstitutingcountrysharesforfirmmarketshares.

Weemploy dataover the period1980 2008.Results for the inverseof the Herfindahl indexare

shownforhardcoalproduction,hardcoalimportsandhardcoalexportsintable3a.

Table3a:ConcentrationStatistics

Production Imports Exports

1980 6.07 9.32 5.81

1990 4.73 10.21 6.88

2000 4.96 10.72 6.68

2008 3.68 12.57 6.22

Source:Authorscalculations.

InternationalEnergyAgency(2010)

The first result to note is that hard coal production is becoming more concentrated over time. It

appears

as

if

the

entire

world

production

of

hard

coal

could

be

explained

by

3.69

equally

large

producers,downfrom6 in1980.Thissuggeststhepresenceofasmallnumberof largeproducers

andalargenumberofsmallproducers.Ofcourse,mostproductionoccursforthehomemarketand

theinternationaltradeinHardCoalshowsasomewhatdifferentpicture.Themarketforimportsand

Exports are become less concentrated over time. The import market has moved from being

explained by9.32equally sizedcountries to12.57 equallysize countries,while the export market

hasmovedfrombeingexplainedby5.81equallysizedcountriesto6.22equallysizedcountries.This

isconsistentwiththeglobalmarketforcoalbecomemorecompetitiveovertime.

Inacompetitivemarket it isunlikelythatanyoneparticipantwouldenjoyanymarketpower.We

test the hypothesis that Australia has no market power by recalculating the Herfindahl index

excludingAustralia

from

the

analysis.

Results

are

shown

in

table

3b.

Table3b:ConcentrationStatistics

Production Imports Exports

1980 5.79 9.32 4.82

1990 4.30 10.21 7.59

2000 4.42 10.72 8.46

2008 3.32 12.57 6.01



Thereis

no

impact

on

the

market

for

imports

as

Australia

does

not

import

hard

coal.

The

results

for

productionandexportsare littlechangedfromtable3a.We interpretthisresultas indicatingthat

whileAustraliamaybelargeproducerandthesinglelargestexporterintheworldAustraliadoesnot

enjoyanymarketpowerandcannotdictatetermsandconditionstotheworldthrough itsrelative

sizeintheworldcoalmarket.

WhiletheremightbesomeshortrundislocationinthemarketwhereAustraliatounilaterallycease

producing and exporting coal, it is unlikely that there would be a longrun impact on the world

economy.Pricesmightbeslightlyhigherforeverylevelofcoalconsumptionbuttheoverallamount


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ofcoalbeingconsumedwouldnotchange.5Thedemandforcoalissuchthatuntilviablesubstitutes

arefoundpeoplewillcontinuetoconsumeitandthedepartureofanyoneexporterwillonlyimpact

themarketuntilalternatesuppliesarebroughttothemarket.Fromanenvironmentalperspectiveit

isthoseeconomieswith lowerenvironmentalstandardsthatare likelytoexpandproductionthe

FormerSovietUnioncountriesandIndonesia.

According to the Australian Coal Association 88.6 percent of Australian coal exports go to Asian

destinations,with75.4percentdestinedforjustJapan,Korea,TaiwanandChina.6Wecalculatedthe

inverse of the Herfindahl index for Australian exports and found a figure of 4.67 equally sized

countrieswouldexplain thepatternofAustraliancoalexports.Totheextent thatAustraliaexited

thecoalexportsmarketIndonesiawouldbewellplacedtoreplaceAustraliancoalinthosemarkets.

AustralianCompetitiveness

TogetanunderstandingofAustraliancompetitivenesswefirstcalculateLocationQuotientsforcoal

exportsrelativetocoalproductionforAustraliaandseveralothercoalexportingeconomies.Wealso

undertakeashift

share

analysis

of

exports

relative

to

production

over

the

period

2000

2008.

We

thenrelatetheseresultstoenvironmentalregulation.

Location quotients and shiftshare analysis are very simple and basic tools employed in regional

economic analysis.7 The location quotient is an index measure comparing a regional share of

economicactivitytoanaggregatemeasureofthateconomicactivity.Forourpurposeswecalculated

LQ

Country ExportsCountry Production

Global ExportsGlobal Production

This measure provides an indicationof whetherAustralian coal exports relative to Australian coalproduction have kept pace with world exports given world coal production. Using data from the

InternationalEnergyAgencyandcomparingtheperiods1980throughto2008wecalculateLocation

Quotientsandtabulateresultsintable4.

5Inaperfectmarketthepricewouldbeunaffectedbyentryandexitwemakenoclaimthatthemarketisperfect,rather

thatit

is

competitive.

6http://www.australiancoal.com.au/theaustraliancoalindustry_coalexports_coalexportdetails.aspx

7SeeRichardson(1978:8990).


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Table4:LocationQuotient(selectedcountries)

LQ1980 LQ1990 LQ2000 LQ2008

Australia 6.34 5.28 4.58 4.76

Canada 8.10 6.51 5.57 5.90

CzechRepublic 2.24 2.92 2.32 2.95

France 0.21 0.35 0.15 4.10

Germany 1.44 0.24 0.05 0.16

NewZealand 0.56 3.00 2.44 3.40

Poland 1.68 1.72 1.32 0.62

UnitedKingdom 0.33 0.13 0.13 0.20

UnitedStates 1.25 0.69 0.35 0.45

OtherOECD 3.57 4.93 5.87 6.14

NonOECDEurope 0.56 1.15 1.38 2.29

FormerSovietUnion 0.57 1.15 1.38 2.29

PRC 0.11 0.16 0.26 0.10

India 0.01 0.02 0.02 0.02

Indonesia 3.57 6.51 5.35 5.29

DPRofKorea 0.03 0.12 0.10 0.64

OtherAsia 0.84 1.45 1.26 2.64

SouthAfrica 2.62 2.14 1.83 1.46

OtherAfrica/MiddleEast 0.74 0.00 0.92 0.88

Colombia

0.25 5.26 5.44 5.67

OtherLatinAmerica 5.78 5.45 5.19



While itdoesappearthatAustraliasshareoftheglobalexportmarkethasslightly increasedsince

2000,itisclearthatAustraliassharehasdeclinedoverperiodsince1980.Somecountriessharehas

increasedquitedramaticallygiventheirproduction.Toexplorethis issue furtherweemployShift

Shareanalysis.8

ShiftShareanalysisisatechniquethatattemptstoisolatecomparativeadvantageataregionallevel.

It decomposes growth (often in employment) into a national share, and industry share and a

regionalshare.Weemploytheanalysistoexaminethecoalexportmarketwithdifferentcountries

asregions.Wecomparetheperiod2000and2008.

8SeeRichardson(1978:202206).


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8

Table5:ShiftShareAnalysis

National

Share

Industry

Share

RegionalShare

Australia 113.2988 13.5513 34.5475

Canada 19.4486 2.3262 17.7224

CzechRepublic

3.5747

0.4276

2.9471

France 0.0606 0.0072 0.0467

Germany 0.1818 0.0217 0.0400

NewZealand 0.9088 0.1087 0.2999

Poland 14.0563 1.6812 27.0751

UnitedKingdom 0.4241 0.0507 0.4734

UnitedStates 32.1114 3.8407 7.5707

OtherOECD 0.3635 0.0435 2.3800

FormerSovietUnion 41.1996 4.9277 40.7282

PRC.

33.3838

3.9929

39.1908

India 0.7876 0.0942 0.2934

Indonesia 34.7167 4.1523 114.7357

DPRofKorea 0.2424 0.0290 1.9866

OtherAsia 2.2417 0.2681 16.0264

SouthAfrica 42.3507 5.0654 47.1853

OtherAfrica/MiddleEast 0.3029 0.0362 0.2667

Colombia 21.4480 2.5653 13.5173

OtherLatinAmerica 4.7864 0.5725 6.1139

TotalWorld 372.6742 44.5742 0.0000



Thefirstcolumntellsushowmuchcoalexportswouldhaveincreasedovertheperiod20002008if

exportshadincreasedbythesamerateasworldcoalproductionhadincreased.Thesecondcolumn

tellsushowmuchcountryexportswouldhave increased ifexportshadgrownatthesamerateas

worldproduction.Thethirdcolumnisaresidualmeasureaccountingforthedifferencebetweenthe

actual change in country exports and that which can be accounted for at the country level and

industrylevel.

The increase in Australian coal exports has not kept pace with the increase in world exports.

Similarly, world exports have not grown as quickly as world production. That factor explains the

negativeindustryshareforallcountries.Whatissurprising,however,isthenegativeregionalshare

forcoalexports forAustralia. It iswidelysupposed thatAustraliahas acomparative advantage in

coalexportsyettheShiftShareanalysisshowsthattonotbethecase.

ItiscertainlythecasethatAustraliadidenjoyacomparativeadvantageincoalexportsinthepast.A

ShiftShare analysis over the period1980 2000and 1990 2000does showAustraliaenjoying a

comparativeadvantageincoalexports.This,inturn,raisesthequestionastowhathasoccurredin

thepasttenyearstounderminethecomparativeadvantagethatAustraliahasenjoyedinthisarea.

ToexploretheturnaroundinAustraliasperceivedcomparativeadvantageinthecoalexportmarket

we compare and contrast Australian performance in the Fraser Institute Annual Survey of Mining


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9

Companies.Thissurveyhasbeenconductedonanannualbasissincethelate1990s.Unfortunately,

theearliestversionthatwecanaccessisfrom2001/2002.

We accessed those surveys and examined the responses that participants provided to a series of

question relating to mining in Australia. In later years the Fraser Institute have segmented their

results

by

State

and

Territory

while

in

earlier

years

they

simply

reported

an

aggregate

result

forAustralia. In table6wereportacomparisonof factors forAustralia in2001/2002andthosesame

factorsin2010/2011.

Perceptions of Australian performance have deteriorated in many of the factors that the Fraser

Institutehasidentifiedinitssurveysasbeingimportant.Forexample,intheareasofenvironmental

regulation and uncertainty about parks and wilderness areas, the perceptions of miners are now

much more adverse than they were ten years ago. Similarly in the areas of taxation and labour

regulation perceptions are much more adverse now than they were ten years ago. One area of

improvement is in native title yet this is one area where The Greens policy would be likely to

introducegreateruncertainty.

Overall the Mineral Potential Assuming Current Regulation for Australia has deteriorated. This

measure rates regional attractiveness based on geological potential and regulatory regime. Given

the deterioration of the policy environment it is not surprising that Australia has fritted away its

comparativeadvantage inmining.PoliciesthatTheGreenswould introducewouldonlyaddtothe

declineinattractiveness.


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10

Table6:AustralianPerformanceinFraserInstituteAnnualSurveyofMiningCompa

2001/2002 2010/201

Australia NSW NT QLD

Uncertainty

concerning

the

administration,

interpretation, and enforcement of existing

regulations

4 16 9 13

Taxation 0 18 14 20

EnvironmentalRegulations 7 12 11 19

RegulatoryDuplicationandInconsistencies 5 15 6 10

NativeLandClaimsUncertainty 31 14 16 15

Uncertainty concerning What Areas will be

ProtectedasWildernessorParks5 17 13 24

Infrastructure 4 0 10 9

LaborRegulation

6 20

4 6

MineralPotentialAssumingCurrentRegulation 90 55 88 76

Notetotable:Thefirsteightrowsshowthesummationoftwoscores,StrongDeterrentandWouldnotpursueinv

rowshowsthesummationoftwofactors,EncouragesInvestmentandNotadeterrentto

Source:JonesandFredricksen(2001/2002)andMcMahonandCervantes(2010/20


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11

Box2:CoalMiningandaCarbonPrice

The details of the Governments carbon price policy have yet to be released. The information in the public

domainsuggeststhatTreasurymodellingcontainedintheAustraliasLowPollutionFuturedocumentremains

applicable to thenewpolicy.Thatdocumentsuggested thatminingandcoalmining inparticularwouldnot

farewellunderacarbonprice.Weread,forexample,atpage166(emphasisadded)

Australiasshareofglobaltradeincreasesforcoal,andisbroadlymaintainedforironandsteel.

Australiasshare

of

global

trade

falls

for

aluminium,

given

its

relatively

higher

emission

intensity

ofproductioninAustralia.

The future of coal depends heavily on the development of carbon capture and storage

technologies. Without such technologies,Australias coalproduction couldfall to 4per cent

below current (2008) levelsby2030,and18per centbelowby2050. Overall, across the four

scenarios (whichassume this technology is viable) Australias coal output falls relative to the

reference scenario, but grows relative to current levels. If carbon capture and storage is not

viable,coaloutputfallsbelowcurrentlevels(Chart6.20).

ToarguethatAustraliasshareoftheglobaltradeincoalrisesisinconsistentwiththedeclineinmarketshare

Australiaexperiencedbetween2000and2008.ThispredictionisafunctionoftheTreasuryassumptionthata

binding and enforceable international agreement is in place to price carbon. In the absence of such an

agreement

there

is

no

reason

to

believe

that

Australian

market

share

will

rise

especially

when

major

competitorsincludeformerSovietUnioncountriesandIndonesia.

Theothermajorpoint toconsider is thatTreasuryreliedon the existenceofaneconomicallyviablecarbon

captureandstoragetechnology.Totheextentthatthistechnologydoesnotexistorisnoteconomicallyviable

thecoalindustrywouldbemassivelyimpactedbytheintroductionofacarbonprice.

TheTreasuryapproachtoassumingawayproblemsisrepeatedinthediscussiononpowerplants.Atpage178

(inBox6.9)weread(emphasisadded)

The retirement of several existing fossil fuel power plants, either fully or partially, owing to

reducedprofitability,doesnotleadtopowershortages.Thereduceddemandforelectricityand

new investment in loweremission sources ensures demand for electricity is met. As with all

industriesadverselyaffectedbyemissionpricing,theearlyretirementofpowerplantscouldlead

toadjustmentcostsforfirmsandemployees,suchasthroughretrainingandrelocation.

Treasuryis

assuming

that

which

should

be

proven

iffossil

power

stations

are

to

be

closed

then

the

costs

of

thoseclosureson theeconomyshouldbequantified.Treasurydidnotundertake that task;rather itargued

thatelectricitysupplywouldbemaintainedbyreduceddemand(whydemandforelectricityshoulddeclineis

notwellexplained)andbyassumingintoexistencethetechnologytoreplacebaseloadelectricitysupply.

Source:AustraliasLowPollutionFuture:TheEconomicsofClimateChangeMitigation


16/33

12

TheEffectsofMiningontheAustralianEconomy

Weestimatethatminingcontributes9percentofGDP.9Ofthatamountweestimatethatthecoal

industrycontributesbetween25percentand31percent.10Thatimpliesthatthedirectbenefitofthe

coal industry to Australian GDP is between $29 billion and $36 billion per annum. Closing the

industrywould

cost,

at

least,

that

amount.

The

indirect

costs

of

closing

the

industry

would

be

large

given that the industry is closely interrelated with other industries within the economy. In this

section we undertake two analyses of the impact of mining on the Australian economy. First we

havealookattheimpactcoalmininghadontheeconomyduringtherecentfinancialcrisis.Second

weundertakesomeverybasicinputoutputanalysis.

MiningandtheFinancialCrisis

During an appearance at Senate Estimates former Treasury Secretary Ken Henry made this

comment.11

Ihave

heard

it

said

on

anumber

of

occasions,

in

fact

Ihave

lost

count

of

the

number

of

timesIhaveheardpeoplesay,includingseniorcommentators,thattheminingindustry

savedAustraliafromrecessionor,eveninlessextremeversionsofthestatement,that

the mining industry contributed strongly to Australia avoiding a recession. These

statementsarenotsupportedbythefactsIwouldhavetosay.

InhisstatementtotheSenateDrHenrywentontotoexaminevarioustrendsintheminingindustry.

Hecommented,forexample,onemploymenttrendsandinvestmentandthelike.Remarkablyhedid

not comment on the exports that occurred during the Financial Crisis. We have investigated the

exportperformanceofthecoalindustryfortheperiodsince2001.Seefigures1and2.12

SinceJanuary

2001

coal,

coke

and

briquette

exports

(for

simplicity

we

refer

to

this

as

being

coal

exports)haveaveraged14.3percentoftotalexports.IntheperiodJuly2007throughJuly2009coal

exportsaveraged18.4percentofexports.

9ThisistheaveragecontributiontoGDPovertheperiod20042011(ABSCatNo.5206.0Table6.)

10 We estimate the coal share by examining Industry Value Add data (ABS Cat No. 8155.0 Table 3) and

averagingacrossthelastfouryearsandthenthelasttwoyears.11

Hansard,27May2010,SenateEstimatespageE12.12

ABSCatNo.5368.0.Table12a.


17/33

13

Figure1:Coal,CokeandBriquettesExports

Source:ABSCatNo.5368.0.Table12a.

The performanceofcoal exports relative to totalexports isshown in figure 2.Thegrowth incoal

exportsafter2003showsthefirstminingboomyetitistheperformanceofcoalexportsafter2008

thatisremarkable.

Figure2:CoalandTotalExports(Index=1,Jan.2001)

Source:ABSCatNo.5368.0.Table12a.

TreasurerWayneSwanrecentlyblamedthepooreconomicperformanceintheMarch2011quarter

onadecreaseincoalproductioninQueensland.13

The latest estimates from Treasury are that these three events are likely to have

subtracted more than 1 percentage point from growth in the quarter. The total

economic impact of the disasters is likely to be around $9 billion, with the March

13Swan(2011).

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Jan

2001

Aug

2001

Mar2002

Oct2002

May

2003

Dec

2003

Jul2004

Feb

2005

Sep

2005

Apr2006

Nov

2006

Jun

2007

Jan

2008

Aug

2008

Mar2009

Oct2009

May

2010

Dec

2010

$millions

0

1

2

3

4

5

6

7

8

Jan

2001

Aug

2001

Mar2002

Oct2002

May

2003

Dec

2003

Jul2004

Feb

2005

Sep

2005

Apr2006

Nov

2006

Jun

2007

Jan

2008

Aug

2008

Mar2009

Oct2009

May

2010

Dec

2010

Index

Coal TotalExports


18/33

14

quarterbearingthebruntofthat.Andmorethanhalfthepredicted$6billionimpactto

coalproductionislikelytoshowupinthequarter.Thesizeofthat loss isn'tsurprising

whenyouconsiderthat85percentofQueensland's57coalminessufferedproduction

lossesintheearlypartoftheyear,accordingtotheMineralsCouncilofAustralia.Allof

thisiswhymarketeconomistsarepredictingoureconomycontractedbyaroundper

centin

the

first

three

months

of

this

year.

TherecanbenodoubtthatadverseweathereffectshavehadanimpactonQueensland,yetitisalso

apparent that the exports of coal in the first quarter of 2011 were much higher than the period

before2008.Clearlycoalexportsarehavingabigger impactontheAustralianeconomynowthan

theydidbeforetheFinancialCrisis.

TofurtherinvestigatethatpointweexaminedtheimpactofcoalexportsonAustralianGDPonthe

assumptionthatcoalexportsceasedandwasnotreplacedbyanyotherexportearningindustry.In

theshortrunthisisareasonableassumptionittakestimefordedicatedassetstobereorganised

totheirnextbestuse.Inthelongrunitisunlikelythatalternativeexportscouldmatchcoalsexport

earnings.

InAustraliaarecessionisdefinedasbeingtwoconsecutivequartersofnegativegrowthinrealGDP.

DuringtheFinancialCrisis,AustraliaonlyexperiencedonequarterofnegativerealGDPgrowth.We

are able to show that without the contribution of coal exports, Australia would likely have

experiencedthreeconsecutivequartersofnegativegrowth.14

Figure3:GDPGrowthwithandwithoutCoalExports

Source:Authorscalculations

IntheabsenceofcoalexportsAustraliamayhaveexperiencednegativeGDPgrowthovertheJune,

SeptemberandDecemberquartersof2008.Overthatperiodcoalexportsaveraged22.8percentof

exports,peakingat28.3percent inNovember.TotheextentthatasinglequarterofnegativeGDP

14 This involves a four step procedure: 1. Calculate the proportion of coal exports using nominal values. 2. Assume the

proportionisconsistentregardlesswhetherthenumbersarenonseasonalorreal.3.CalculaterealGDPnetcoalexports.

4.Calculate

growth

rates.

The

assumption

we

have

made

at

step

2is

important

but

it

is

reasonable

ifthe

statistical

technique employed to transform nominal data to real data and seasonally adjusted data does not differ across

components.

2.5

2.0

1.5

1.0

0.5

0.0

0.51.0

1.5

2.0

2.5

Sep

07

Dec

07

Mar08

Jun

08

Sep

08

Dec

08

Mar09

Jun

09

Sep

09

Dec

09

Mar10

Jun

10

Sep

10

Dec

10

Mar11

RealGDPGrowth

%

RealGDP

Growth Real

GDP

Growth

(net

coal

exports)


19/33

15

growthcouldbelargelyattributedtoaminordeclineincoalexportsitisnotahugeleapoffaithto

believe that theabsenceofcoalexports in totalwouldhavehadahuge impacton theAustralian

economyduringtheFinancialCrisis.

AnotherwayofgaugingtheimpactofcoalexportstotheAustralianeconomyistomeasureitsvalue

toevery

Australian.

In

Figure

4we

present

the

contribution

of

coal

exports

to

GDP

per

capita.

These

estimatesarecalculatedbymultiplyingtheproportionscalculatedpreviouslybyrealGDPpercapita

(seasonallyadjusted)estimates.

Figure4:ContributionofCoalExportstoRealGDPpercapita


Interestingly,theseresultsindicatethatatthepeakofthecrisis,thecontributionofthecoalexport

sector also peaked. This observation is important as it clearly demonstrates that the coal sector

effectively provided insulation to the wealth of each Australian as measured by GDP per capita

duringthefinancialcrisis.

MiningandCoalscontributiontotheAustralianeconomy:InputOutputTables

Analysis.

Inputoutputtablesarearichsourceofeconomicinformation.TheABSreleasesinputoutputtables

onaregularbasis.Themostrecentversionavailablecorrespondstothefinancialyear2006/7which

wasreleased

in

December

2010

(ABS

Cat

5209).

While the data in these tables may be considered dated we believe, if anything, that the coal

industry (andmining ingeneral)hasbecomemorecritical toAustraliaseconomicperformance in

recentyears.Wesuggestthatourfindingsbasedonthesetablesunderstatethecurrentimportance

ofcoal(andmining)industries.15

Oneofthekeyusesofinputoutputtablesismultiplieranalysis.Multipliersareanestimateofhow

an economy changes with respect to a change (typically one unit) in a given sector. We consider

15Forexample,the inputoutputtable7 indicatesthatcoalminingrepresentsnearly10%ofexports.Asexplained inan

earlierpartofthispaperitnowaveragesinexcessof14%.

0 100 200 300 400 500 600 700 800

Mar08

Jul08

Nov08

Mar09

Jul09

Nov

09

Mar10

Jul10

Nov10

Mar11

$


20/33

16

three different versions of multiplier, output multipliers, income multipliers, and employment

multipliers.Beforewediscussthesemultiplierswefirstanalysetheinformationcontainedwithinthe

inputoutputtables;thatisweidentifywhichsectorsaremostsensitivetochangesin(coal)mining

industry.

Inter-Industry

Analysis

Inputoutput tables for the Australian economy identify 111 sectors.16 Several tables are made

available by the ABS. One table that is particularly useful is the Direct Requirements Table it

capturesinter/intraIndustryflowsaswellasfinaldemand.17,18

Thesectorsthatweareprimarilyinterestedinare:

Coalmining

OilandGasextraction

IronOreMining

NonFerrous

Metal

Ore

Mining

NonMetallicMineralMining

ExplorationandMiningSupportServices

PetroleumandCoalProductManufacturing.

Thesesectorscanbebroadlydescribedasbeingtheminingindustry.Byfocusingonthesesectors

wecanidentifywhichsectorsarelikelytobemostaffectedbydecreasesinminingoutput.

Table7presentsthetop10 industriesthatcontribute inputstotheCoalminingsector.19Weshow

thecontributionasestimatedbytheABSforexample,iftheCoalindustryweretoexpandby$100,

theexplorationandminingsupportserviceindustrywouldexpandby$10.64.

Table7:Toptenindustriesthatfeedintothecoalminingsector

Coalmining

Industry Contribution

ExplorationandMiningSupportServices 10.644

PetroleumandCoalProductManufacturing 3.152

WholesaleTrade 2.821

RailTransport 2.466

ConstructionServices 2.120

Coalmining(Selfsupply) 1.904

TransportSupport

services

and

storage

1.805

Professional,ScientificandTechnicalServices 1.617

NonResidentialPropertyOperatorsandRealEstateServices 1.433

Finance 1.402


16ABSCat.No.5209.

17Table6,ABSCatalogue5209.ThistableisderivedfromTable5oftheABScatalogue5209.

18Thereareseveralpartstothistable,weare interested inthefirst111rowsandcolumnsonly,that is,the

part of the table that is related to inter/intra Industry flows. The main difference between the Direct

Requirements

Table

and

table

5

is

that

each

column

of

the

Direct

Requirements

Table

adds

to

100

and

thereforeeachvaluerepresentstheamountofflowrequiredforoneunitofoutputfromthatsector.19

Tablesfortheother6miningrelatedsectorsareinAppendix1.


21/33

17

The statistics in Table 7 indicate that the coal mining sector is interwoven with key nonmining

sectors.Considerforexampleconstructionservices,andfinance.Theseindustriesarecriticaltothe

operationof theCoalminingsectorand thereforeanydecrease incoalproductionwouldcausea

declineinthesesectors.

In

general

it

is

evident

that

all

mining

sectors

are

interwoven

with

key

industrial

sectors

(asevidencedinthetablespresentedinAppendix1).MiningisakeyindustryoftheAustralianeconomy

and any policy designed to restrict mining output, and coal mining in particular, would have

significantadverseeffectsontheAustralianeconomy.

HistoricallytheABSonlyestimatedmultipliersfor28industries.Theinformationwehaveisfarmore

disaggregated. Multipliers work on the principle that each industry has to purchase inputs from

other industriesand in turnsupplies inputs toyetother industries.20Each industrydirectlyaffects

the output, employment, and income of (almost) all other industries. Under some simplifying

assumptions it is possible to calculate the interrelatedness of the industries that make up the

Australian economy. Unfortunately these assumptions are quite strict and multiplier analysis can

only

provide

a

rough

guide

to

policy

analysis.

Nonetheless

multipliers

are

easily

understood

andhavetheimportantcharacteristicthattheyemphasisetherelatednessoftheeconomy.Apolicythat

impacts one part of the economy very often has flowon effects that can be, and often are,

overlooked.

Table8:OutputMultipliersfortheCoalIndustry

Multipliers Value

Initialeffects 1.00

Firstroundeffects 0.46

IndustrialSupporteffects 0.39

Productioneffects 0.85

Consumptioneffects

0.72

Simpleeffects 1.85

Totaleffect 2.57


Table8presentsthevariousoutputmultipliersforthecoalminingindustry.

The various multipliers may be interpreted as follows; the initial multiplier represents an initial

increaseof1unit, the firstroundeffectmeasures the increase inoutput fromallother industries

required toproducetheextraunitofcoal.The industrialsupporteffectcanbe interpretedasthe

additionalincreaserequiredtoindustriessupplyingmining.Thesimplemultiplieristheaggregateof

therequired

first

round,

initial

impact

and

industry

effect.

The

production

effect

simply

represents

the industrialsupporteffectaswellasthefirstroundeffect.Thetotaleffect includestheeffectof

households effectively making them endogenous to system.21 It is important to include the

household sector as it incorporates the increases due to household spending. The consumption

effectmeasuresthecontributionofhouseholds.

20

We

use

the

techniques

described

in

ABS

(1995).

21WecalculatetheTruncatedTotalEffectthisisconsistentwithABSpractices. SeeMillerandBlair(2009)foradetailed

explanation.


22/33

18

Figure5:TotalOutputMultipliersforMiningSectorsbenchmarkedagainstFinanceandRetail


Figure5presentsthemultipliersforthesevenminingrelatedsectorstogetherwiththeRetailTrade

and Finance industry. Both Retail Trade and Finance represent major economic sectors of the

economyasdeterminedbytheirGrossValueaddedcontributions.Thegraphclearlyshowsthatnon

metallicmininghasarelativelyhighmultiplier.Further,explorationandcoalminingalsoappearto

havehighmultipliers,notably,higherthanthefinanceindustry.Thisobservationisimportantgiven

webelievethecoalminingmultiplierislikelytobeunderestimatedgiventheincreaseincommodity

pricesinrecentyears.

Thenext

two

figures

present

income

and

employment

multipliers.

In

both

instances

so

called

Type

2A multipliers are presented.22 These are calculated to reflect the fact that the initial effects are

differentforeachsector.ThefulllistofmultipliersispresentedinAppendix2.

Accordingtofigure6,foreach$1 increase in incomesofworkers inthe ironoreminingsector,an

extra$5.50(approx.)isearnedbyworkersinallotherindustriesoftheeconomy.

22SeeABS(1995).Type2Amultipliersestimatethemultipliereffectrelativetoaoneunitincreaseintheinitial

effect.

0 0.5 1 1.5 2 2.5 3 3.5

Oilandgasextraction

PetroleumandCoalProduct

NonFerrousMetalOreMining

IronOreMining

Finance

Coalmining

ExplorationandMiningSupport

RetailTrade



23/33

19

Figure6:IncomeMultipliersfortheMiningIndustriesTotalOutputMultipliersforMiningSectors

benchmarkedagainstFinanceandRetail


Similarly,theemploymentmultipliersindicatethatforeachextra(fulltimeperson)employedinthe

Iron Ore Mining industry an extra 6.5 (approx.) full timejobs are created by all industries in the

economy.

Figure7:EmploymentMultipliersfortheMiningIndustriesTotalOutputMultipliersforMiningSectors

benchmarkedagainstFinanceandRetail


TheABS recommends that thesecalculationsarebest interpretedasrelativerather thanabsolute

measures.Ourresultsdemonstratethattheminingindustry,using2006/7data,hasthepotentialto

significantly stimulate the Australian economy relative to other sectors such as finance and retail

trade.This is consistent with the actual experience since2007.One factor that makes the mining

industry so potent is that average weekly earnings of employees is highest in the mining related

0 1 2 3 4 5 6

RetailTrade

ExplorationandMiningSupport

Finance


Coalmining


Oilandgasextraction


IronOreMining

0 2 4 6 8 10

RetailTrade

Finance




ExplorationandMiningSupportServices

Coalmining

IronOreMining

Oiland

gas

extraction


24/33

20

industries23.Accordingtoeconomictheoryitislikelythattheseworkerswouldhavehighermarginal

propensities to consume than workers in lower paid sectors such as finance and retail trade. The

effect of substituting high income employment for lower income employment is likely to have

adverseeffectsontheeconomy.

The

multipliers

consistently

demonstrate

that

the

(coal)

mining

sectors

are

integral

to

Australiaseconomicperformance.Therefore,anyrestrictions/retardationofthissectorwillsignificantlyretard

Australianeconomicperformance.

Box3:EmploymentConsequences

Wehavecalculatedtheemploymentmultipliertobeapproximately6.5.Thisindicatesthatforevery(fulltime)

job loss in the coal mining industry 6.5 full timejobs would be lost in the Australian economy across all

industries.

ABSdataindicatesthatattheendof2007/08thecoalindustryeffectivelyemployed29,393.3fulltimepeople

(ABSCatalogue5209.0.55.001,Table20).Thereforeifthecoalindustrycloseddownweestimatethat191,056

(equivalent)fulltimejobswouldbelost.

Thiswouldinevitablyleadtoincreasedpressureontaxpayers,intheformof:

Government

Revenue

Tax

revenue

would

significantly

deteriorate.

According

to

the

Australian

TaxationOfficethecoalindustrypaid$3.6billioninnetcorporateincometaxin2008/09.

Government Expenditure Increased demand for welfare assistance. Assuming the job seeker

allowanceis$500perfortnightandtheaveragedurationofemploymentis12months,thecosttothe

Australian government would be approximately $2.5 bn. This does not include additional welfare

assistancethatwouldberequiredi.e.,subsidisedhealthcare,retrainingandrelocationetc.

Theimmediatecosttothebudget,excludinganyconsiderationofpersonalincometaxrevenueloss,wouldbe

$6.1billion.

SecondaryImpacts

Whatwehavenotconsidered isthatareduction incoalwillhaveasignificant impactonregional

Australia and our major trading partners. Importantly many (coal) mines are located in regional

Australiaandareanintegralpartofthelocalcommunity.Therefore,anyreductioninoutputwould

significantly affect local communities. What makes this problem particularly acute is that

governments,bothstateandfederal,areactivelypursuingpoliciesthatpromoteregionalpopulation

growth.Akeyaspectofthispolicymustbeeconomicviability.Webelievethataphasingoutofcoal

productionwouldsignificantlyinhibitgoodpolicyoutcomes.Itisconceivablethatareductioninthe

coal sector would place greater strains on metropolitan resources as people from regional areas

migratetocitiesseekingemployment.

TheGreensstateintheirpolicydocumentthattheywould:

develop a plan to assist affected communities in the transition from dependence on

coal mining and coalfired power stations, given that global efforts to reduce

greenhousegasemissionswillinevitablyreducethedemandforcoal.

To our knowledge no such plan currently exists. Furthermore, in terms of time and money a

reductionincoaloutputwouldcauseasignificantburdentoGovernmentresourcesandtaxpayers,

leading to an increase in the likelihood of future budget deficits. This of course is in addition to

placingfurtherpressureon(public)housingandtransportinmetropolitanareas.

23Table2A,ABSCatalogue6306,May2011.


25/33

21

AnotherimportantimplicationfortheAustraliaeconomyisthatimportsarelikelytobecomemore

expensive.Itisimportanttonote,thatthecountriesAustraliaexportscoaltoarethesamecountries

thatAustraliaimportsgoodsfrom.Forexample,goodsfromJapanincludeelectronicequipmentand

motorvehicles.Areduction inbilateraltrade is likelytohavesignificantadverseeffectsonallour

tradingpartnersatleastuntilsubstitutesforAustraliancoalislocated.

ElectricityGenerationandOpportunityCost

Inthissectionwepointtosomeof theopportunitycostsofsubstitutingaway fromcoalpowered

electricity generation to renewable energy. The June 2011 BP Statistical Review of World Energy

provides some important information as to the scale and scope of renewable energy around the

worldandwithinAustralia.24BPprovidesestimatesofenergyconsumptionbyfueltypestandardised

to millions of tonnes of oil. We examine that data and transform it into percentages for selected

countriestoexaminetherelativeusageofdifferentsourcesofenergy(seetable9).

Table9:PrimaryEnergyConsumptionbyFuelType(%2010)

Oil

NaturalGas

Coal

Nuclear

EnergyHydro

electricityRenewables

Australia 36.04 23.10 36.72 2.88 1.27

Canada 32.30 26.68 7.39 6.41 26.18 1.04

PRC 17.62 4.03 70.45 0.69 6.71 0.50

Germany 36.03 22.91 23.94 9.95 1.35 5.82

India 29.66 10.63 52.96 0.99 4.81 0.95

Indonesia 42.57 25.93 28.14 1.86 1.50

Japan 40.25 16.99 24.70 13.22 3.85 1.02

Malaysia 40.22 51.19 5.41 3.34

NewZealand 36.51 19.58 5.29 29.10 9.52

Norway 25.60 8.85 1.20 63.88 0.72

Singapore

89.11

10.89

SouthAfrica 20.93 2.81 73.37 2.56 0.25 0.08

SouthKorea 41.41 15.14 29.80 13.10 0.31 0.20

Taiwan 41.81 11.49 36.47 8.51 0.81 0.90

United

Kingdom35.25 40.41 14.92 6.74 0.38 2.34

United

States37.19 27.17 22.95 8.41 2.57 1.71

TotalWorld 33.56 23.81 29.63 5.22 6.46 1.32

Source:BPStatisticalReviewofWorldEnergy(June2011:41)

Lookingatrenewables itisclearthatAustralianusageofrenewableenergy isapproximatelyatthe

worldaverage.OfallAustralianprimaryenergyconsumptionAustralianconsumes1.27percentfrom

renewablesourcesthatcompareswith1.32percentastheworldaverage.Somecountriesarealso

abletoemployhydroelectricityfortheirconsumptionpurposes,notablyNorway,NewZealandand

Canada. When looking at fossil fuel consumption Australia is above the world average. Energy

consumption from oil, gas and coal constitutes 95.85 percent of all energy sources, compared to

87.65percentforthewholeworld.Thedriverofthatdifferenceiscoal.Australianrelianceofcoalis

at36.72percentcomparedtotheworldrelianceof29.63percent.

AsbeforewehavecalculatedconcentrationratiosfortheenergysourcesandfindthatAustraliahas

3.13 equally sized primary energy sources. That compares to 3.79 for the world as a whole. That

24bp.com/statisticalreview


26/33


27/33

23

instance thesheernumberof turbinesnecessary to replace coalpoweredplants isveryhigh.The

second problem is that local communities are becoming increasingly unhappy with the locations

decisionsofturbines.

A recent senate enquiryTheSocialandEconomic ImpactofRuralWindFarms has cast a shadow

overthe

viability

of

wind

farms.

Many

of

the

submissions

objecting

to

wind

farms

suggested

that

wind turbines cause significant losses in tourism, health problems, and a decrease in property

values31.

Thesesubmissionssuggestthatwindfarmsmayfacetighterplanningcontrols inthefuture.This is

likelytoincreasesitecosts.Asaresulttheeffectivenessofwindfarmtechnologyisunderacloudin

AustraliaandthereforeislikelytoexpandataslowerratethanprojectedbyABARE.

TheElectricPowerResearchInstitutehasestimatedlevelisedcostsofelectricityforAustraliaandthe

resultsofthatexercisesuggestalternativestocoalpoweredelectricitywouldbeveryexpensive.32

We have summarised some of its results in table 10. We show results with and without carbon

captureand

storage

(CCS)

the

Electric

Power

Research

Institute

assumes

that

this

technology

will

theviableanddeployedby2020.

Table10:EstimateLevelisedCostsofElectricity(constant2009$MegaWatthours)

Coal

(NoCCS)

Coal

(CCS)

Gas

(NoCCS)

Gas

(CCS)

Wind Solar Nuclear

$/MWh 78 91 167 191 97 153 154 214 327 473 173

Source:ElectricPowerResearchInstitute(2009:103105)

As can be seen, in the absence of carbon capture and storage, coal and gas are economically

superiortoanyalternateenergytechnology.

energy towindpoweredenergyshouldmaintain the levelofreliability that isalreadyenjoyedbyelectricity

consumers.31

http://www.smh.com.au/environment/energysmart/tightercontrolslikelyafterinquirytoldwindfarmsharm

tourism201106131g0jt.html32

The levelised cost of electricity is method that allows cost comparisons between electricity generated by

alternatetechnologies.


28/33


29/33

25

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27

NonFerrousMetalOreMining NonMetallicMineralMining Petroleum

Industry Contribution Industry Contribution

Exploration

and

Mining

SupportServices

9.139 ConstructionServices

9.739 Oil

and

gas

NonFerrousMetalOreMining 4.354 WholesaleTrade 5.330 Petroleum

Manufactur

Petroleum and Coal Product

Manufacturing

1.964 Petroleum and Coal Product

Manufacturing

5.255 WholesaleT

ConstructionServices 1.941 NonMetallicMineralMining 3.996 Constructio

WholesaleTrade 1.641 RoadTransport 3.547 Building C

Administrat

Services

Coalmining 1.613 Exploration and Mining

SupportServices

3.517 Water, P

TransportProfessional, Scientific and Technical

Services

1.252 Heavy and Civil Engineering

Construction

3.476 BasicChem

Finance 1.071 BasicChemicalManufacturing 1.950 Coalmining

Oilandgasextraction 0.828 Specialised and other

Machinery and Equipment

Manufacturing

1.795 Rental and

RealEstate

ElectricityGeneration 0.792 Automotive Repair and

Maintenance

1.741 Finance


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28

Appendix2Multipliers

OutputMultipliers

Industry Initial First

round

Industrial Production Consumption Simple Total

Coalmining 1 0.46 0.39 0.85 0.72 1.85 2.57

Oilandgasextraction 1 0.20 0.17 0.37 0.31 1.37 1.68

IronOreMining 1 0.37 0.33 0.70 0.48 1.70 2.18

Non Ferrous Metal Ore

Mining

1 0.34 0.28 0.62 0.48 1.62 2.10

NonMetallicMineralMining 1 0.64 0.62 1.26 1.09 2.26 3.35

Exploration and Mining

SupportServices

1 0.47 0.43 0.9 1.08 1.90 2.98

Petroleum and Coal Product

Manufacturing

1 0.35 0.17 0.52 0.22 1.52 1.74

Finance 1 0.31 0.18 0.49 0.92 1.49 2.41

RetailTrade

1

0.42 0.39 0.81 1.29

1.81 3.09

IncomeMultipliers

Initial First

Round

Industrial Production Consumption Simple Total Type

2A

Coalmining 0.13 0.10 0.10 0.20 0.18 0.33 0.51 3.92

Oilandgasextraction 0.05 0.04 0.05 0.09 0.08 0.14 0.22 4.40

IronOre

Mining

0.06

0.08 0.08 0.16 0.12

0.22 0.34 5.67

Non Ferrous Metal Ore

Mining

0.08 0.07 0.07 0.14 0.12 0.22 0.34 4.25

Non Metallic Mineral

Mining

0.21 0.14 0.15 0.29 0.27 0.50 0.77 3.67

Exploration and Mining

SupportServices

0.25 0.13 0.11 0.24 0.27 0.49 0.76 3.04

Petroleum and Coal

ProductManufacturing

0.03 0.03 0.04 0.07 0.06 0.10 0.16 5.33

RetailTrade 0.38 0.11 0.09 0.20 0.32 0.58 0.91 2.39

Finance 0.21 0.14 0.07 0.21 0.23 0.42 0.65 3.10


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